A common misconception is that a “one size fits all approach” applies to how your estate is divided between your loved ones when you pass away without a Will. This often leads to individuals becoming comfortable with the understanding that their estate would simply pass outright to their spouse, or their children on the basis they are related. As an Associate Solicitor with a wide exposure to probate matters, my experience has proven that these misconceptions lead to increased costs, time and likelihood of a breakdown of relationship between families. It is important to educate the wider public about the risks of believing what you read and hear without taking professional legal advice.
If you pass away without making a Will, your estate is governed by the “Rules of Intestacy”. The Rules of Intestacy mean that you have no testamentary freedom or choice as to how your hard-earned assets, business and personal items are divided up between your loved ones. Instead, a statutory order of priority determines the division of assets for you. The most common misconception, is that if you pass away with a surviving spouse and children, only a percentage of the estate would pass to the spouse, and the other half to the children leaving your estate exposed to risk of bankruptcy, financial immaturity, separation, divorce and most importantly your spouse having no automatic right to inherit the family home.
Before exploring the potential issues involved, it is useful to consider what the rules of intestacy mean for you:
The intestacy rules set out that, if you are married with no children, everything will automatically transfer to your surviving spouse/civil partner. Although straight forward and 99% of the time an individual’s intentions, there is exposure to the following risks:
- Diversion of assets in the context of second relationships;
- Inflating the spouses estate for IHT purposes (potentially leading to double taxation of assets);
- Risk and exposure to care home fees, bankruptcy or civil proceedings; and
- No asset protection or detailed wishes as to how the ownership of assets and managing of investments/businesses would be handled.
In addition to those risks, if you have children, then your spouse/civil partner takes your personal belongings, a £322,000 statutory legacy, and half of the remainder. The remaining half will pass to your children (at the age of 18 if they are minors). If the estate is less than £322,000, the surviving spouse/civil partner inherits everything. The same applies if you are unmarried (which is common in recent days where partners are only cohabitating) but leave children, then the whole-blood children will only inherit everything.
It is clear from the above scenarios that although a helpful statutory provision that is a foundation for intestacy estates. The intestacy rules can lead to undesirable consequences for the surviving beneficiaries and your executors that are dealing with the estate administration.
On the other hand, as I mentioned above by not putting a Will in place, it can lead to difficulty and complexity for your “administrator(s)” when they are administering your estate. The person who is entitled to manage, distribute and sell your assets when you pass away intestate is also determined by the intestacy rules. This means that the order of entitlement automatically grants the power to a relative to make decisions about your assets, distribute the estate and collect and sell the assets. This power may somewhat be undesirable, as it could lead to a distant relative with no experience in handling cash, investments, running a business or simply clearing and disposing of personal items that mean a lot to you.
The only solution to avoiding this is by utilising your power to make a Will before you pass away. A will is a powerful document, and most likely one of the most important documents you will sign in your lifetime. It allows you to curtail those disastrous outcomes and appoint a trusted, knowledgeable and suitable executor who can manage your affairs and ensure that your wishes are followed. For example, you could instruct them to sell certain assets, but continue to manage the business or transfer the shares to the other partners. It is clear that there is a positive correlation between writing a will and having your estate pass the way you wanted it to with flexibility, compared to passing away intestate and your estate being rigidly governed by the intestacy rules. The answer is that putting a Will in place, no matter how straightforward or complicated will allow you to have more piece of mind than if you did not.
In light of the above scenarios, one further outcome that has a common misconception is that when an individual needs to move into a care home from their residential home, the council automatically sells the house to settle the costs. As a probate solicitor with a wealth of experience in court of protection matters, the rules are somewhat the opposite. The care costs are decided on a means tested basis in England & Wales, whereby a financial assessment determines eligibility for support towards care home fees. This cap is currently £23,250, which includes the value of your main residence unless disregarded under the requirements or planning that has been put in place. Where it has been included, the local authority will not force a sale whilst you are alive. I have touched on this point in relation to your Will and estate planning, to alert you to the importance of preparation and protection. It is strongly advised that you seek legal advice as to how you can protect your eligibility to means tested benefits and consider care home fee planning for the future. Our team of experts at Vault Private Client has experience in this type of planning and would be delighted to assist.
The horror stories and myths about the law and estate planning outlined above, all lead to the same outcome that it is crucial to plan and prepare. Although a daunting and somewhat overwhelming experience it can be conceived as, with the right assistance and advice, it can lead to a peaceful future for you and your loved ones and avoid the catastrophic outcomes for all those involved.
